Warren Buffett, Benjamin Graham, and Peter Lynch are probably the most revered stock pickers of all-time. Those who follow Buffett are always awaiting a glorious moment like when Warren bought tons of Coca-Cola (KO) at single digit price-to-earnings multiples. To find such a moment would be to relive the path of the guru and reach investing Nirvana (or, at the very least, a higher tax bracket).
Well acolytes, although PE ratios are not anemic, Warren (Coke in hand) has walked to the top of the mountain in Omaha and announced:
“It’s quite clear that stocks are cheaper than bonds. I can’t imagine anybody having bonds in their portfolio when they can own a diversified group of equities. But people do because the lack the confidence. But that’s what makes for the attractive prices. If they had their confidence back, they wouldn’t be selling at these prices. And believe me, it will come back over time.”
Yes, bond yields are insanely low. This morning 5-year US Treasuries are offering a measly 1.25%. However, given the magnanimous credit contraction and fragile housing market, rates may remain super-low for much longer than Warren explains. That means we may not see a near-term stampede from fixed-income into stocks. And stocks need a major sector rotation to enter a meaningful bull market.
With that said, Warren has an extraordinary track-record betting on the business and market cycles. In 2020 he may once again look like the Oracle of Omaha …